Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels

Abstract

Few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of an antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the socially optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and a specific rule of cartel formation. Then we extend the analysis to the case of N symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.